Private-Equity Managers, Oil Companies Targets in Revenue Drive

House Speaker John Boehner, a Republican from Ohio, exits his office at the Capitol in Washington, D.C., U.S., on Monday, Aug. 1, 2011. Photographer: Jay Mallin/Bloomberg

Aug. 2 (Bloomberg) -- Democrats seeking to use the next
phase of deficit-reduction talks to raise taxes for private
equity managers, oil companies and high-income earners will face
continued opposition from Republicans who will have the
procedural power to stop them.

The debt-limit bill headed for final passage in the Senate
today would empower a 12-member committee of lawmakers to seek
$1.5 trillion in deficit cuts, with a Dec. 23 deadline for
congressional action. Democrats, who didn’t get any revenue
increases in the debt ceiling compromise Congress is
considering, are likely to return to their previous proposals,
said Representative Chris Van Hollen of Maryland, the top
Democrat on the House Budget Committee.

“It has to be done in a balanced fashion,” Van Hollen
told reporters yesterday. “It has to include closing these
corporate tax loopholes for special interests and looking at
other revenue sources from the very top income earners.”

The biggest barrier to including revenue in the
recommendations issued by the new committee will be the same one
that prevented Obama from securing more revenue in this month’s
deal: Republican opposition to tax increases of any kind,
including curbs on tax breaks.

Elvis ‘More Likely’

“The six Democrats will wail and gnash their teeth about
the need to have tax increases, and the six Republicans will
tell them it’s more likely that Elvis is going to show up here
than we’ll agree to that,” said Kenneth Kies, a tax lobbyist at
the Federal Policy Group in Washington whose clients include
General Electric Co. and Caterpillar Inc.

That won’t stop Democrats from trying.

“We live to fight another day in trying to get some
additional revenues into this equation,” said Senator Mary
Landrieu, a Louisiana Democrat.

President Barack Obama has recommended taxing the profit
share -- or carried interest -- earned by private equity
managers, venture capitalists and others at ordinary income tax
rates and not the lower capital gains rate. He also has called
for ending tax benefits for oil and gas companies and for
capping the itemized deductions of upper-income Americans.

Senate Minority Leader Mitch McConnell of Kentucky and
House Speaker John Boehner of Ohio each would appoint three
fellow Republicans to the committee. That structure lets them
exclude members willing to consider new revenue and thus prevent
a majority of the committee from raising taxes.

‘No-Tax’ Votes

“You end up with six no-tax-increase votes, and it’s hard
to see how you do business,” said Clint Stretch, managing
principal of tax policy at Deloitte Tax LLP in Washington.

Representative Dave Camp, a possible appointee to the
committee, said he isn’t open to raising more revenue.

“What we need to do is find ways to cut spending,” said
Camp, a Michigan Republican who is chairman of the House Ways
and Means Committee.

One potential difference is that under the debt-ceiling
compromise, failure by the committee to act or to advance its
proposal through Congress would trigger automatic cuts in
programs that both parties favor, including defense spending.

“It really just becomes an issue of defense vs. high-income,” said Chuck Marr, director of federal tax policy at the
Center on Budget and Policy Priorities, a Washington research
group that favors programs to assist low-income individuals.

Republican Opposition

Representative Tom Price, a Georgia Republican, said his
party would oppose tax increases.

“We’re going to do our job and make certain that those
defense reductions don’t occur in a way that compromises our
national security,” he said. “There won’t be any tax
increases.”

The likely rules governing the committee’s search for
deficit reduction make it tough for lawmakers to address a
broader overhaul of the tax code, and Camp said he wants those
efforts to remain outside the panel’s jurisdiction.

The Congressional Budget Office’s revenue baseline, or
yardstick, assumes that the Bush-era income tax cuts will expire
as scheduled at the end of 2012. Extending most of the cuts and
allowing high-income cuts to expire, as Democrats want, would be
viewed as a tax cut. That’s because rates would be lower than
those that take effect automatically if Congress did nothing.

Baseline Complication

“They can’t mess with rates, because the rates are high in
the baseline,” Stretch said.

The committee could choose its own yardstick that would
assume the tax cuts were extended and count revenue increases on
top of that, said Jay Carney, Obama’s press secretary.

Because the committee is bipartisan, at least one
Republican would have to agree to a different baseline.

In a fact sheet released July 31, the White House said
Obama could require action on revenue by vetoing an extension of
tax cuts for high earners at the end of 2012.

Using that veto to target high-income tax breaks would
require Congress to decouple them from the other tax cuts. Also,
Obama could reject tax cuts for everyone until Congress splits
up the high-income and low-income cuts. Last year, a Congress
controlled by Democrats didn’t decouple the cuts, and Obama
signed a two-year extension of all of the tax breaks.